MF Global's Trader That Will Go To Prison - Brent Dooley

In a NY Times piece, Teresa Tritch wrote about Louis Freeh's recently released investigative report of what went wrong when
MF Global collapsed in October 2011 due a wayward trade strategy on European debt. At the firm's helm was former Senator and Governor of NJ Jon Corzine who has not been heard from since (save a few congressional hearings where he said little). Freeh's report summarized that Corzine "knew, or should have known" about weaknesses in the firm's internal risk controls. Tritch wrote that the report suggests that "Mr. Corzine passive-aggressively let those weaknesses endure, because stronger controls would have put an end to his bigger-is-better trading strategy." While Corzine was not criminally prosecuted, and most likely never will be, those loose internal controls that were tolerated within the company cost one young man years in prison ... Evan Brent Dooley.

Dooley (45) was a commodities trader for MF Global in February 2008 when he placed a wrong-way trade on wheat. The resulting loss was a whopping $141 million. Dooley was fired and MF Global paid a $10.4 fine for its lack of supervision of Dooley and others. Like most companies that are fined by authorities, they pay them and promise to increase controls to assure these violations never occur again. If anything, MF Global had plenty of human casualties to show that their internal controls were lacking long before the meltdown of October 2011. This week Brent Dooley paid a high price for working at the loosely managed MF Global ... he's heading to federal prison for 5 years and has restitution of $141 million. A lot of money for a guy who qualified for a publicly funded attorney because he is broke.

Bloomberg dispatched reporters to look into the Dooley's massive trading losses once became public in late February 2008. Within days, the reporters had a story of a young man who was in financial distress, had alcohol problems, gambling problems and was behind on child support payments. I wondered how the guy was even allowed to be put at a desk risking any money on behalf of a financial firm like MF Global.

According to Dooley's own Sentencing Memorandum, at the time of his ill-fated trades he had borrowed money from family members, his mother had recently passed away and his wife was diagnosed with breast cancer. On February 26, 2008, Dooley decided that he was going to strike it rich and solve all of his financial problems with a position on wheat futures that quickly went bad. That day also corresponded with another event ... MF Global had turned off its risk management software - the internal risk controls on traders - which helped to speed up traders' transactions. Dooley stated that this was a common practice, and this time he jumped on the opportunity. Had the software been in place, Dooley would not have been able to place his trade ... a shortcoming MF Global acknowledged in civil litigation with the Iowa Public Employees Retirement System. It should be noted that nothing has been written of unauthorized trades within the firm that were successful, profitable, when the software was down ... of which I am certain there were some. However, those are seldom reported ... in fact, I've never heard of one ever!

Had there been some limiting mechanism to prohibit large trades that doomed Dooley, there would have either been no trade or a limited loss that would have resulted in him being fired. Instead, the father of two, who has worked (pest control worker and sales consultant) these past 5 years providing a minimal amount to care for his family, is heading to prison at a cost of nearly $30,000 / year. This is in addition to a few hundred grand the tax payers have already paid for his legal defense. Government prosecutors had wanted 10 years in prison ... guess they thought Dooley would be a better person with a longer prison sentence.

Nobody from MF Global's failure has been prosecuted. The transfer of hundreds of millions of dollars belonging to its clients, not the firm, were misused to cover debts owed by MF Global in its final hours ... and nobody has been held accountable. Nobody.

Dooley and other traders at MF Global clearly demonstrated that there were deeper issues at the firm other than a few rogue traders. However, it should cause us to reflect why some are allowed to correct their mistakes with fines, while others must lay down their freedom. There seems to be some disparity in what we call justice. For us mortals, a federal judge has decided that the best deterrent for future would-be rogue traders is to send guys like Dooley to prison. It begs the question for those who were too big to prosecute in the MF Global case ... What, if anything, will deter them?